The Executive Nonqualified Defined Benefit Plan Advisor name, title(s), Firm RVP Name, Title, the Principal Financial Group  Date NONQUALIFIED DEFERRED COMPENSATION (NQDC) Updated November 2015

The Principal The Principal Financial Group ® has worked with thousands of employers to provide design, implementation, financing and internet-based, plan-level administrative services and support for nonqualified executive benefit programs. The Principal Financial Group is the No. 1 Provider of NQDC plans* * Based on total number of NQDC plans, PLANSPONSOR 2015 NQDC Buyer’s Guide

Tax reforms Qualified retirement plans The Challenge 1974ERISA1988TAMRA 401(k)(m) Testing 1976TRA OBRA 1981ERTA1990RRA 1982TEFRA1993 OBRA 93 $235,840 to $150, TRA SBJPA 1986 TRA 86 & OBRA $30,000 to $7, EGTRRA

2016 and future limitations Qualified plan limitations The Challenge 401(k)/403(b) Plan Deferral/”Age 50” Catch-Up: 2016: $18,000/$6,000 Max. Compensation: 2016: $265, : Indexed 401(k) plan average deferral limit 2% Max. Defined Benefit 2016: $210,000 at age : Indexed Max. Contributions Lesser of 100%-$53,000 Deductible IRA (Indexed) contributions Limited for higher adjusted gross income (AGI)

The retirement gap

Findings in today’s market Source: 2012 Trends in Nonqualified Deferred Compensation Among Plan Sponsors and Participants, published March 2013 by the Principal Financial Group. 97% of plan sponsors likely to continue to offer NQDC 62% provide a company contribution / 61% offer matching contributions 79% package a nonqualified plan with qualified plan 89% of participants say NQDC plans important in reaching retirement goals. 35% plan to increase NQDC contributions Top reasons to offer a NQDC plan –Help key employees save for retirement in excess of qualified plan limits –Provide a competitive benefits package when recruiting –Help retain key employees

Financing Techniques for For-Profit Clients of The Principal* COLI 65% 29% Unfinanced 6% Taxable Investments *Based on actual plan data for the Principal Financial Group  (The Principal  ) as of 6/30/15

A nonqualified Defined Benefit plan A contractual obligation to pay a defined benefit to a key employee based on a stated benefit amount or formula, at a stated time over a stated period.

The Executive Nonqualified Defined Benefit Plan Characteristics: Employer-paid benefit Employer bears the investment risk NQ rules, “Top Hat” Exemption Staging a come back due to 401(k) losses and corporate conservatism

General “Top Hat” guidelines 1.$120,000 or more of total compensation 2.Key management position(s) that have the ability to “influence plan design”. 3.No more than 10% of employees eligible compared to the entire employee group. 4.Average compensation of “Top Hat” participants 3.0 times greater than the average of the non “Top Hat” group.

Benefits & Issues to Consider NONQUALIFIED DEFINED BENEFIT PLAN THE EXECUTIVE NONQUALIFIED DEFINED BENEFIT PLAN

The plan helps “solve a problem” for some of the most important key employees of the company Retirement benefits limited under Sec. 401(a)(17) and Sec. 415 can be restored Provide incentive for recruiting, rewarding, and retaining key executives Provide targeted retirement compensation Benefits for the company

Issues to consider for the company Deferred vs. current income tax deduction –Accrue future deduction as a deferred tax asset to reflect timing difference Potential charge to earnings on the taxable investment or corporate-owned life insurance (COLI) assets purchased to finance the plan Investment risk Plan-level administrative fees Human resource time to communicate plan

Financing NONQUALIFIED DEFINED BENEFIT PLAN THE EXECUTIVE NONQUALIFIED DEFINED BENEFIT PLAN

Plan financing considerations The best approach depends on the company’s: 1.Income tax bracket 2.Cash flow 3.Earnings assumptions 4.Realized vs. unrealized distributions

Unfinanced approach Advantages Simple Provides cash to grow the company Disadvantages Liquidity (increased risk to participant) Company liable for benefit regardless of earnings “Legacy vs. liability” Leaving future management the responsibility for cash flow to pay benefit liability Plan financing options

Financed with taxable investments Advantages Many investment options Disadvantages Earnings “taxable” to company Highest cash flow to support tax on earnings Transaction accounting & record keeping may be difficult Plan financing options

Financing with Variable Corporate Owned Life Insurance (COLI) Advantages Earnings accumulate “tax deferred” Tax-free distributions (subject to contract limitations/charges) Tax-free life insurance death proceeds Disadvantages Policy charges Process of underwriting Education Plan financing options

Nonqualified plan administrative services system THE EXECUTIVE NONQUALIFIED DEFINED BENEFIT PLAN NONQUALIFIED DEFINED BENEFIT PLAN

Benefit communication to employees and employers: Plan Participant: Understand the benefit amount, timing & form Plan Sponsor: Asset portfolio, plan information & participant information Annual accounting disclosure report: ASC 715 Accounting Disclosure Annual actuarial report: Review of assets and projected benefits Plan administrative services

Sample Plan Employer website

Business entity –Public –Private C corporation (S corporation, LLC or partnership for non-owners) –Tax-exempt organization Substantial business continuity Financial integrity –Profitable –Good cash flow –Long history Company characteristics Summary

Highly compensated employees –Limited in the qualified retirement plan, 401(k) deferrals –Who need to be “carved out” of the qualified plan –Who need performance-based company contributions Company is looking for a solution Company characteristics Summary

Highly compensated employees who are limited in the company’s qualified retirement plan –2.0% average deferral percent test –$18,000 maximum deferral limit in 2016 –$265,000 eligible wage limit in 2016 Qualified plan carve-out Selective contributions to recruit, retain or reward valuable executives Problems to solve Summary

Disclaimer The subject matter in this communication is provided with the understanding that The Principal ® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Before investing, carefully consider the investment option objectives, risks, charges, and expenses. Contact a financial professional or visit principal.com for a prospectus or, if available, a summary prospectus containing this and other information. Please read it carefully before investing. Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Princor Financial Services Corp., , Member SIPC and/or independent broker/dealers. Principal National, Principal Life, Principal Funds Distributor, Inc. and Princor ® are members of the Principal Financial Group ®, Des Moines, IA No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Copyright ©2015 Principal Financial Services, Inc. BB | 11/2015 | t kc

Q&A The Executive Nonqualified Defined Benefit Plan Questions?